UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2021

or

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

001-34941

(Commission file number)

 

PARK CITY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		37-1454128
State or other jurisdiction of incorporation		(IRS Employer Identification No.)
5282 South Commerce Drive, Suite D292 Murray, Utah 84107		(435) 645-2000
(Address of principal executive offices)		(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 Par Value	PCYG	NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes    [X] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes    [X] No

 

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes    [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   [X] Yes    [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	[   ]	Accelerated filer	[   ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging Growth Company	[   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

[  ] Yes   [X] No 

 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the issuer as December 31, 2020 which is the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $55,192,000 (at a closing price of $4.79 per share).

 

As of September 28, 2021, 19,395,152 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Items 10, 11, 12, 13 and 14 of Part III incorporate by reference certain information from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

 

 

 

TABLE OF CONTENTS TO ANNUAL REPORT

ON FORM 10-K

YEAR ENDED JUNE 30, 2021

 

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12
PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8.	Financial Statements and Supplementary Data	22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	22
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	23
Item 11.	Executive Compensation	23
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	23
Item 13.	Certain Relationships and Related Transactions, and Director Independence	23
Item 14.	Principal Accounting Fees and Services	23
PART IV
Item 15.	Exhibits, Financial Statement Schedules	24
	Signatures	25
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets as of June 30, 2021 and 2020	F-2
	Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020	F-3
	Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended June 30, 2021 and 2020	F-4
	Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020	F-5
	Notes to Consolidated Financial Statements	F-6
Exhibit 31	Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32	Certifications pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including the risk factors set forth below and elsewhere in this Report. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Statements made herein are as of the date of the filing of this Annual Report on Form 10-K with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

  

 

 

 

 

 

 

PART I

 

ITEM I.

BUSINESS

 

Overview

 

Park City Group, Inc., a Nevada corporation (“Park City Group”, “We”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation (“ReposiTrak”) which operates a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies, and source hard-to-get-things.

 

The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace (“MarketPlace”), encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers and source hard to find items, (ii) ReposiTrak Compliance and Food Safety (“Compliance and Food Safety”) solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain (“Supply Chain”) solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers.

 

The Company’s Supply Chain and MarketPlace services provide its customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solutions help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”).

 

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety and compliance activities. The principal customers for the Company’s products are household name multi-store food retail chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses.

   

The Company has a hub and spoke business model. The Company is typically engaged by retailers and wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services.

 

The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“PCG Utah”); Park City Group, Inc., a Delaware corporation (100% owned) (“PCG Delaware”); and ReposiTrak (100% owned) (collectively, the “Subsidiaries”). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the operating results of the operations of PCG Delaware and ReposiTrak. Park City Group has no business operations separate from the operations conducted through its Subsidiaries.

 

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.

 

Recent Developments

 

During the second half of fiscal year 2021, ReposiTrak launched two new products designed to expand market share in the manufacturing segment: Certificate of Analysis Automation and Active-QMS for Quality Management. Both solutions were developed at the request of existing Compliance Management Solution customers and improve competitiveness in the manufacturing/food supply chain with synergistic solutions for growth in existing customers and increasing competitiveness for new business focused on quality management.

 

The quality management solution also has application in the retail sector, in central commissaries, distribution centers, and even task management in stores.

 

 

 

Another major new product initiative commenced in February 2021, as ReposiTrak joined with a group of major retailers and wholesalers to form the Food Traceability Leadership Consortium (“FTLC”), in response to the Food and Drug Administration's (“FDA”) announcement regarding the increase of food traceability requirements under the FSMA. The expanded traceability requirements proposed by the FDA have far reaching consequences for the US food supply chain, from farms to fisheries down to retail stores, due to new, detailed documentation requirements designed to support more effective recalls.

 

These new proposed requirements create substantial data and records management challenges for all supply chain trading partners, many of whom do not have this capability today. The risk is that the supply chain will become fractious array of inoperable systems that could lead to massive operational complexity and expense escalation. The FTLC founding members worked collaboratively with ReposiTrak to develop a complete food traceability solution that meets all the FDA FSMA proposed reporting requirements at a very large manageable cost, based on the ReposiTrak supply chain platform which tracks product/shipment data in a similar manner today for cost and inventory control purposes.

 

The new solution, called the ReposiTrak Traceability Network, is launching in September 2021 with phased roll outs at suppliers and retailers, and is expected to scale rapidly throughout fiscal year 2022, based on the existing Compliance Management user network.

 

COVID-19

 

There are many uncertainties regarding COVID-19, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s fiscal years ended June 30, 2020 or 2021, we are unable to predict the impact that COVID-19 will have on its future financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of COVID-19 and intends to make adjustments to its responses accordingly.

 

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On April 23, 2020, the Company received proceeds from a loan in the amount of approximately $1.1 million from its lender, U.S. Bank National Association (the “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES Act administered by the SBA. In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 23, 2022, with a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan was forgiven on December 19, 2020.

 

Company History

 

The Company’s technology has its genesis in the operations of Mrs. Fields Cookies, a company co-founded by Randall K. Fields, the Company’s Chief Executive Officer. The Company began operations utilizing patented computer software and profit optimization consulting services to help its retail clients reduce their inventory and labor costs.

 

On January 13, 2009, the Company acquired 100% of Prescient Applied Intelligence, Inc., a Delaware corporation (“Prescient”), a provider of solutions for retailers which, among other things, captured information about transactions between retailers and their suppliers. 

 

In February 2014, Prescient changed its name to Park City Group, Inc. As a result, both Park City Group and PCG Delaware were named Park City Group, Inc.

 

In June 2015, the Company elected to exercise an option to acquire a 75% interest in ReposiTrak from Leavitt Partners, LP for a cash payment and negotiated the purchase of the remaining 25% with an exchange of shares of the Company. As a result, ReposiTrak became a wholly owned subsidiary of the Company.

 

As of June 30, 2020, the Company completed its Supply Chain and Compliance and Food Safety, and MarketPlace supplier discovery and B2B e-commerce solution. As a result, the Company is now largely capable of delivering its services through a single ReposiTrak branded user interface.

  

 

 

Target Industries Overview

 

The Company develops its software and services for multi-store retail chains, wholesalers and distributors, and their suppliers. The bulk of the Company’s customers are in the U.S. consumer retail sector for food and general merchandise, although the Company’s software and services are not sold exclusively to this customer base, and the Company believes that its software and services are also applicable to a wide variety of other potential customers domestically and abroad.

 

Backdrop

 

The U.S. consumer retail sector in general, and food and general merchandise retailers more acutely, are facing pressure from several significant forces. These include (i) increased competitive pressures from the rise of online retailers, (ii) increased regulatory and tort risks, particularly for food retailers, as a result of the passage of the FSMA which placed greater responsibility for the safety of products on the participants in the food supply chain, and (iii) the pressure from consumers to increase product diversity, and in particular, the number of smaller, localized vendors.

 

Solutions and Services

 

The Company’s software and services are designed to address the business problems faced by our customers. These solutions are delivered via a cloud-based infrastructure and grouped in three product application suites that mirror the workflow of the Company’s customers as they manage the activities of their supply chain.

 

Key Application Suites

 

 

 

   

 

 

Professional Services

 

The Company has two professional services groups: (i) the Business Analytics Group offers business-consulting services to suppliers and retailers in the grocery, convenience store and specialty retail industries, and (ii) the Professional Services Group provides consulting services to ensure that our solutions are seamlessly integrated into our customers’ business processes as quickly and efficiently as possible.

 

Technology, Development and Operations

 

Product Development

 

The Company’s product development strategy is focused on creating common technology elements that can be leveraged in multiple applications across our core markets. To remain competitive, the Company is currently designing, coding and testing new products and developing expanded functionality of its current products.

 

Operations

 

We currently serve our customers from a third-party data center hosting facility. Along with the Company’s Statement on Standards for Attestation Engagements (“SSAE”) No. 16 certification Service Organization Control (“SOC2”), the third-party facility is also a SSAE No. 16 – SOC2 certified location and is secured by around-the-clock guards, biometric screening and escort-controlled access, and is supported by on-site backup generators in the event of a power failure.

  

Customers

 

The Company is currently engaged primarily by food related consumer goods retailers, wholesalers, and their suppliers. The bulk of the Company’s customers are in the U.S. consumer retail sector for food and general merchandise. However, the Company is opportunistic and will offer its solutions to a wide variety of other potential customers. Target Corporation accounted for approximately 9.2% of the Company’s total revenue in the fiscal year ended June 30, 2021.

 

Sales, Marketing and Customer Support

 

Sales and Marketing

 

Through a focused and dedicated sales effort designed to address the requirements of each of its solutions, the Company believes it is well positioned to understand its customers’ businesses, trends in the marketplace, competitive products and opportunities for new product development. 

 

The Company’s primary marketing objectives have been to increase awareness of our solutions, generate sales leads and develop new customer relationships. To this end, the Company attends industry trade shows, conducts direct marketing programs, publishes industry trade articles, participates in interviews and selectively advertises in industry publications.

 

In fiscal 2016 the Company embarked on a process of repurposing the Company’s supply chain applications so that they can be delivered via ReposiTrak’s highly scalable online infrastructure and launching its MarketPlace supplier discovery and B2B e-commerce solution on this same infrastructure. As a result, the Company is now largely capable of delivering its services through a single ReposiTrak branded user interface.

 

With the convergence of the Company’s solutions to a single delivery platform, the Company also reorganized its sale force and reoriented its marketing efforts. This process involved streamlining the sales force to enable cross-selling by reducing regional account managers and shifting our sales emphasis towards the Company’s inside sales team located at its corporate headquarters in Murray, Utah.

 

Customer Support

 

The Company’s global customer support group responds to both business and technical inquiries from its customers relating to how to use its solutions and is available to customers by telephone and email. Basic customer support during business hours is available to customers. Premier customer support includes extended availability and additional services and is available along with additional support services such as developer support and partner support for an additional fee.

   

 

 

Competition

 

The Company competes with a myriad of software vendors, developers and integrators, B2B exchanges, consulting firms, focused solution providers, and business intelligence technology platforms. Although our competitors are often considerably larger companies in size with larger sales forces and marketing budgets, the Company believes that its deep industry knowledge, the breadth and depth of our offerings, and our relationships with key industry, wholesaler, and other trade groups and associations, gives it a competitive advantage.

 

Patents and Proprietary Rights

 

The Company relies on a combination of trademark, copyright, trade secret and patent laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our name. We also enter into confidentiality agreements with our employees, consultants and other third parties and control access to software, documentation and other proprietary information.

 

The Company has been awarded nine U.S. patents, and a number of U.S. registered trademarks and U.S. copyrights relating to its software technology and solutions. The Company’s patent portfolio has been transferred to an unrelated third party, although the Company retains the right to use the licensed patents in connection with its business. The Company’s policy is to continue to seek patent protection for all developments, inventions and improvements that are patentable and have potential value to the Company and to protect its trade secrets and other confidential and proprietary information, and the Company intends to defend its intellectual property rights to the extent its resources permit.

 

The Company is not aware of any patent infringement claims against it; however, there are no assurances that litigation to enforce patents issued to the Company to protect proprietary information, or to defend against the Company’s alleged infringement of the rights of others will not occur. Should any such litigation occur, the Company may incur significant litigation costs, and it may result in resources being diverted from other planned activities, which may have a materially adverse effect on the Company’s operations and financial condition.

 

Employees

 

As of June 30, 2021, the Company employed a total of 70 employees. Of these employees, 15 are located overseas. The Company plans to continue expanding its offshore workforce to augment its analytics services offerings, expand its professional services and to provide additional programming resources. The employees are not represented by any labor union.

 

Reports to Security Holders

 

The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, it files annual, quarterly and other reports and information with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of these reports, proxy and information statements and other information may be obtained by electronic request at the following e-mail address: [email protected].

 

Government Regulation and Approval

 

Like all businesses, the Company is subject to numerous federal, state and local laws and regulations, including regulations relating to patent, copyright, and trademark law matters.

 

Cost of Compliance with Environmental Laws

 

The Company currently has no costs associated with compliance with environmental regulations and does not anticipate any future costs associated with environmental compliance; however, there can be no assurance that it will not incur such costs in the future. 

 

 

 

 

ITEM 1A.

RISK FACTORS

 

An investment in our Common Stock is subject to many risks. You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K (this “Annual Report”), including the financial statements and the related notes, before you decide whether to invest in our Common Stock. Our business, operating results and financial condition could be harmed by any of the following risks. The trading price of our Common Stock could decline due to any of these risks, and you could lose all or part of your investment.

 

Risks Related to the Company

 

We have incurred losses in the past and there can be no assurance that we will operate profitably in the future.

 

Our marketing strategy emphasizes sales of subscription-based services, instead of annual licenses, and using Spokes to connect to our Hubs. This strategy has resulted in the development of a foundation of retail and wholesale Hubs to which suppliers can be “connected”, thereby accelerating future growth. If, however, this marketing strategy fails, revenue and operations will be negatively affected. We had net income of $4,117,395 for the year ended June 30, 2021, compared to a net income of $1,593,269 for the year ended June 30, 2020. Although we generated net income in the year ended June 30, 2021, there can be no assurance that we will achieve profitability in future periods. We cannot provide assurance that we will continue to generate revenue or have sustainable profits. If we do not operate profitably in the future, our current cash resources will be used to fund our operating losses. Continued losses would have an adverse effect on the long-term value of our Common Stock and any investment in the Company.

 

Although our cash resources are currently sufficient, our long-term liquidity and capital requirements may be difficult to predict, which may adversely affect our long-term cash position.

 

Historically, we have been successful in raising capital when necessary, including through private placements, a registered direct offering, and stock issuances to our officers and directors, including our Chief Executive Officer, to pay our indebtedness and fund our operations, in addition to cash flow from operations. If we are required to seek additional financing in the future in order to fund our operations, retire our indebtedness and otherwise carry out our business plan, there can be no assurance that such financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests. 

   

Our business is dependent upon the continued services of our founder and Chief Executive Officer, Randall K. Fields. Should we lose the services of Mr. Fields, our operations will be negatively impacted.

 

Our business is dependent upon the expertise and continued service of our founder and Chief Executive Officer, Randall K. Fields. Mr. Fields is essential to our operations. Accordingly, an investor must rely on Mr. Fields’ management decisions that will continue to control our business affairs. We currently maintain key man insurance on Mr. Fields’ life in the amount of $5,000,000; however, that coverage would be inadequate to compensate for the loss of his services. The loss of the services of Mr. Fields would have a materially adverse effect upon our business.

 

Risk Relating to Business Operations

 

Quarterly and annual operating results may fluctuate, which makes it difficult to predict future performance.

 

Management expects a significant portion of our revenue stream to come from the sale of subscriptions, and to a lesser extent, transactions processed though MarketPlace, license sales, maintenance and professional services charged to new customers. These amounts will fluctuate and are uncertain because predicting future sales is difficult and involves speculation. In addition, we may potentially experience significant fluctuations in future operating results caused by a variety of factors, many of which are outside of our control, including:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Future operating results may fluctuate because of the foregoing factors, making it difficult to predict operating results. Period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon as an indicator of future performance. In addition, a large portion of our expense will be fixed in the short-term, particularly with respect to facilities and personnel making future operating results sensitive to fluctuations in revenue.

 

We face threats from competing and emerging technologies that may affect our profitability, as well as competitors that are larger and have greater financial and operational resources that may give them an advantage in the market.

 

Markets for our type of software products and that of our competitors are characterized by development of new software, software solutions or enhancements that are subject to constant change; rapidly evolving technological change; and unanticipated changes in customer needs. Because these markets are subject to such rapid change, the life cycle of our products is difficult to predict. As a result, we are subject to the following risks: whether or how we will respond to technological changes in a timely or cost-effective manner; whether the products or technologies developed by our competitors will render our products and services obsolete or shorten the life cycle of our products and services; and whether our products and services will achieve market acceptance.

 

 Moreover, many of our competitors are larger and have greater financial and operational resources than we do. This may allow them to offer better pricing terms to customers in the industry, which could result in a loss of potential or current customers or could force us to lower prices. Our competitors may have the ability to devote more financial and operational resources to the development of new technologies that provide improved operating functionality and features to their product and service offerings. If successful, their development efforts could render our product and service offerings less desirable to customers, again resulting in the loss of customers or a reduction in the price we can demand for our offerings. Any of these actions could have a significant effect on revenue.

 

 

 

We face risks associated with new product introductions.

 

Our future revenue is dependent upon the successful and timely development of new and enhanced versions of our products and potential product offerings suitable to the customers’ needs. If we fail to successfully upgrade existing products and develop new products, and those new products do not achieve market acceptance, our revenue will be negatively impacted.

 

It may be difficult for us to assess risks associated with potential new product offerings:

 

 

 

 

 

  

We cannot accurately predict renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.

 

Our customers have no obligation to renew their subscriptions for our service after the expiration of their initial subscription period. Our renewal rates may decline or fluctuate as a result of factors, including customer dissatisfaction with our service, customers’ ability to continue their operations and spending levels, consolidation, and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service or reduce the level of service at the time of renewal, our revenue will decline, and our business will suffer.

 

Our future success also depends in part on our ability to increase rates, sell additional features and services, or addition subscriptions to our current customers. This may also require increasingly sophisticated and costly sales and marketing efforts that are targeted at senior management. If these strategies fail, we will need to refocus our efforts toward other solutions, which could lead to increased development and marketing costs, delayed revenue streams, and otherwise negatively affect our operations.

 

If our Compliance and Food Safety solutions do not perform as expected, whether as a result of operator error or otherwise, it could impair our operating results and reputation.

 

Our success depends on the food safety market’s confidence that we can provide reliable, high-quality reporting for our customers. We believe that our customers are likely to be particularly sensitive to product defects and operator errors, including if our systems fail to accurately report issues that could reduce the liability of our clients in the event of a product recall. In addition, our reputation and the reputation of our products can be adversely affected if our systems fail to perform as expected. However, if our customers or potential customers fail to implement and use our systems as suggested by us, they may not be able to deal with a recall as effectively as they could have. As a result, the failure or perceived failure of our products to perform as expected, could have a material adverse effect on our revenue, results of operations and business.

  

 

 

If a customer is sued because of a recalled product we could be joined in that suit, the defense of which would impair our operating results.

 

We believe our Compliance and Food Safety solutions would be helpful in the event of a recall. However, their ultimate usefulness is dependent on how the customer uses our products, which is in many ways out of our control. Similarly, a customer which is a defendant in a product liability case could claim that had our services performed as represented the extent of potential liability would have been minimized and therefore, we should have some contributory liability in the case. Defending such a claim could have a material adverse effect on our revenue, results of operations and business.

 

The deployment of our services, or consultation provided by our personnel, could result in litigation naming us as a party, which litigation could result in a material and adverse effect on us, and our results of operations.

 

Our Compliance and Food Safety solutions are marketed to potential customers based, in part, on our service’s ability to reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners. In the event litigation is commenced against a customer based on issues caused by a constituent in the supply chain, or consultation provided by our personnel, we could be joined or named in such litigation. As a result, we could face substantial defense costs. In addition, any adverse determination resulting in such litigation could have a material and adverse effect on us, and our results of operations.

  

We face risks relating to the sale and delivery of merchandise to customers.

 

We depend on a number of other companies to perform functions critical to our ability to deliver products to our customers, including maintaining inventory, preparing merchandise for shipment to our customers and delivering purchased merchandise on a timely basis. We also depend on the delivery services that we and they utilize. We also depend on our partners to ensure proper labelling of products. Issues or concerns regarding, product safety, labelling, content or quality could result in consumer or governmental claims. In limited circumstances, we sell merchandise that we have purchased. In these instances, we assume the risks related to inventory.

 

We face risks associated with proprietary protection of our software.

 

Our success depends on our ability to develop and protect existing and new proprietary technology and intellectual property rights.  We seek to protect our software, documentation and other written materials primarily through a combination of patents, trademarks, and copyright laws, trade secret laws, confidentiality procedures and contractual provisions. While we have attempted to safeguard and maintain our proprietary rights, there are no assurances that we will be successful in doing so. Our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours.

 

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. In some types of situations, we may rely in part on ‘shrink wrap’ or ‘point and click’ licenses that are not signed by the end user and, therefore, may be unenforceable under the laws of certain jurisdictions. Policing unauthorized use of our products is difficult. While we are unable to determine the extent to which piracy our software exists, software piracy can be expected to be a persistent problem, particularly in foreign countries where the laws may not protect proprietary rights as fully as the United States. We can offer no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not reverse engineer or independently develop similar technology.

 

We may discover software errors in our products that may result in a loss of revenue, injury to our reputation or subject us to substantial liability.

 

Non-conformities or bugs (“errors”) may be found from time to time in our existing, new or enhanced products after commencement of commercial shipments, resulting in loss of revenue or injury to our reputation. In the past, we have discovered errors in our products and as a result, have experienced delays in the shipment of products. Errors in our products may be caused by defects in third-party software incorporated into our products. If so, we may not be able to fix these defects without the cooperation of these software providers. Because these defects may not be as significant to the software provider as they are to us, we may not receive the rapid cooperation that may be required. We may not have the contractual right to access the source code of third-party software, and even if we do have access to the code, we may not be able to fix the defect. In addition, our customers may use our service in unanticipated ways that may cause a disruption in service for other customers attempting to access their data. Since our customers use our products for critical business applications, any errors, defects or other performance problems could hurt our reputation and may result in damage to our customers’ business. If that occurs, customers could elect not to renew, delay or withhold payment to us, we could lose future sales or customers may make warranty or other claims against us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation. These potential scenarios, successful or otherwise, would likely be time consuming and costly.

 

 

 

Interruptions or delays in service from our third-party data center hosting facility could impair the delivery of our service and harm our business.

 

We currently serve our customers from a third-party data center hosting facility located in the United States. Any damage to, or failure of, our systems generally could result in interruptions in our service. As we continue to add capacity, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service. Further, any damage to, or failure of, our systems generally could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable. 

 

As part of our current disaster recovery arrangements, our production environment and all of our customers’ data is currently replicated in near real-time in a separate facility physically located in a different region of the United States. We do not control the operation of these facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our service. Even with the disaster recovery arrangements, our service could be interrupted.

   

If our security measures are breached and unauthorized access is obtained to a customer’s data, our data or our information technology systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.

 

Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise during transfer of data to additional data centers or at any time, and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information, such as user names, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

 

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

 

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business/operating margins, revenues and competitive position.

 

The secure processing, maintenance and transmission of this information is critical to our operations and business strategy, and we devote significant resources to protecting our information. The expenses associated with protecting our information could reduce our operating margins.

 

 

 

Weakened global economic conditions may adversely affect our industry, business and results of operations.

 

The rate at which our customers purchase new or enhanced services depends on several factors, including general economic conditions. The United States and other key international economies have experienced in the past a downturn in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability or willingness to purchase our enterprise cloud computing services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts or affect renewal rates, all of which could adversely affect our operating results.

 

COVID-19 could potentially affect our sales and disrupt our operations and could have a material adverse impact on the Company.

 

The global COVID-19 pandemic could adversely impact our operations or those of our customers. The extent to which COVID-19 impacts our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence. If the public continues to avoid public spaces, including retail stores, or if we, or any of our customers encounter any disruptions to our or their respective operations, facilities or stores, or if our customers were to partially or fully shut down due to COVID-19, then we or they may be prevented or delayed from effectively operating our or their business, respectively, and the marketing and sale of our services and our financial results could be adversely affected.

 

Risks Relating to Our Common Stock

 

Our quarterly results of operations may fluctuate in the future, which could result in volatility in our stock price.

 

Our quarterly revenue and results of operations have varied in the past and may fluctuate as a result of a variety of factors. If our quarterly revenue or results of operations fluctuate, the price of our Common Stock could decline substantially. Fluctuations in our results of operations may be due to several factors, including, but not limited to, those listed and identified throughout this “Risk Factors” section.

 

The limited public market for our stock may adversely affect an investor’s ability to liquidate an investment in us.

 

Although our Common Stock is currently quoted on the NASDAQ Capital Market, there is limited trading activity. We can give no assurance that an active market will develop, or if developed, that it will be sustained. If an investor acquires shares of our Common Stock, the investor may not be able to liquidate our shares should there be a need or desire to do so.

  

Future issuances of our shares may lead to future dilution in the value of our Common Stock, will lead to a reduction in shareholder voting power and may prevent a change in control.

 

The shares may be substantially diluted due to the following:

 

 

 

Stock issuances may result in reduction of the book value or market price of outstanding shares of Common Stock. If we issue any additional shares of Common Stock or Preferred Stock, proportionate ownership of Common Stock and voting power will be reduced. Further, any new issuance of Common Stock or Preferred Stock may prevent a change in control or management.

  

Our officers and directors have significant control over us, which may lead to conflicts with other stockholders over corporate governance.

 

Our officers and directors control approximately 41% of our Common Stock. Randall K. Fields, our Chief Executive Officer, controls 34% of our Common Stock. Consequently, Mr. Fields, individually, and our officers and directors, as stockholders acting together, can significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions.

 

 

 

Our corporate charter contains authorized, unissued “blank check” Preferred Stock issuable without stockholder approval with the effect of diluting then current stockholder interests.

 

Our articles of incorporation currently authorize the issuance of up to 30,000,000 shares of ‘blank check’ Preferred Stock with designations, rights, and preferences as may be determined from time to time by our Board of Directors, of which 700,000 shares are currently designated as Series B Convertible Preferred Stock (“Series B Preferred”) and 550,000 shares are designated as Series B-1 Preferred Stock (“Series B-1 Preferred”). As of June 30, 2021, a total of 625,375 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were issued and outstanding.

 

Our Board of Directors is empowered, without stockholder approval, to issue one or more additional series of Preferred Stock with dividend, liquidation, conversion, voting, or other rights that could dilute the interest of, or impair the voting power of, our Common Stockholders. The issuance of an additional series of Preferred Stock could be used as a method of discouraging, delaying or preventing a change in control.

 

We have not paid dividends on our Common Stock, and investors should consider the potential for us to pay dividends on our Common Stock as a factor when determining whether to invest in us.

 

We have not paid dividends on our Common Stock and do not anticipate the declaration of any dividends pertaining to our Common Stock in the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our Board of Directors will determine our future dividend policy at their sole discretion, and future dividends will be contingent upon future earnings, if any, obligations of the stock issued, our financial condition, capital requirements, general business conditions and other factors. Future dividends may also be affected by covenants contained in loan or other financing documents, which we may executed in the future. Therefore, there can be no assurance that dividends will ever be paid on our Common Stock.

  

Our officers and directors have limited liability and indemnification rights under our organizational documents, which may impact our results.

 

Our officers and directors are required to exercise good faith and high integrity in the management of our affairs. Our articles of incorporation and bylaws, however, provide that the officers and directors shall have no liability to the stockholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase or derived an improper benefit from the transaction. As a result, an investor may have a more limited right to action than he would have had if such a provision were not present. Our articles of incorporation and bylaws also require us to indemnify our officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct our internal affairs, provided that the officers and directors reasonably believe such actions to be in, or not opposed to, our best interests, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations. 

 

ITEM 2.

PROPERTIES

 

Our principal place of business operations is located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. We lease approximately 10,000 square feet at this corporate office location, consisting primarily of office space, conference rooms and storage areas. Our telephone number is (435) 645-2000. Our website address is http://www.parkcitygroup.com.

 

ITEM 3.

LEGAL PROCEEDINGS

 

We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity.  There are no pending or threatened material legal proceedings at this time.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

 

 

PART II

 

ITEM 5.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Share Price History

 

Our Common Stock is traded on the NASDAQ Capital Market under the trading symbol “PCYG”. The following table sets forth the high and low sales prices of our Common Stock for the periods indicated:

 

	Quarterly Common Stock Price Ranges
	2021		2020
Fiscal Quarter Ended	High	Low	High	Low
September 30	$5.45	$3.72	$8.25	$4.76
December 31	$5.53	$3.80	$6.17	$4.27
March 31	$7.91	$4.75	$5.73	$3.33
June 30	$6.97	$4.80	$6.22	$3.40

 

Dividend Policy

 

Outstanding shares of Series B Preferred and Series B-1 Preferred each accrue dividends at the rate per share of 7% per annum if paid by the Company in cash, and 9% per annum if paid by the Company in additional shares of Series B-1 Preferred. Dividends on the Series B Preferred and Series B-1 Preferred are payable quarterly. To date, the Company has not paid dividends on its Common Stock. Our present policy is to retain future earnings (if any) for use in our operations and the expansion of our business.

 

Holders of Record

 

At June 30, 2021, there were 636 holders of record of our Common Stock with 19,351,935 shares issued and outstanding, 3 holders of Series B Preferred with 625,375 shares issued and outstanding, and 4 holders of Series B-1 Preferred with 212,402 shares issued and outstanding. The number of holders of record and shares of Common Stock issued and outstanding was calculated by reference to the books and records of the Company’s transfer agent.

 

Issuance of Securities

 

We issued shares of our Common Stock in unregistered transactions during fiscal year 2021. All of the shares of Common Stock issued in non-registered transactions were issued in reliance on Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and were reported in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K filed with the SEC during the fiscal year ended June 30, 2021. 40,217 shares of Common Stock were issued subsequent to June 30, 2021.

 

Share Repurchase Program

 

On May 9, 2019, our Board of Directors approved of the repurchase of up to $4.0 million shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 12b-18 of the Exchange Act. On March 17, 2020, given the extreme uncertainty due to COVID-19 at the time, the Board suspended the Share Repurchase Program.

 

On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4 million to $6 million. The Share Repurchase Program expires 24 months following May 18, 2021, and it may be suspended for periods of time or discontinued at any time, at the Board’s discretion. The total remaining authorization for future shares of Common Stock repurchases under our Share Repurchase Program was $2,050,885 as of June 30, 2021. From time-to-time, our Board may authorize further increases to our Share Repurchase Program.

 

 

 

The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the years ended June 30, 2021 and 2020: 

Period  (1)	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Remaining Amount Available for Future Share Repurchases Under the Plans or Programs
Year Ended June 30, 2020:
July 1, 2019 – September 30, 2019	79,954	$6.43	167,554	$3,000,235
October 1, 2019 – December 31, 2019	174,615	$4.80	342,169	$2,162,557
January 1, 2020 – March 31, 2020	157,616	$5.11	499,785	$1,359,123
April 1, 2020 – June 30, 2020	-	-	-	$1,359,123
Year Ended June 30, 2021:
July 1, 2020 – September 30, 2020	-	$-	-	$1,359,123
October 1, 2020 – December 31, 2020	-	$-	-	$1,359,123
January 1, 2021 – March 31, 2021	84,081	$6.04	584,586	$2,850,880
April 1, 2021 – June 30, 2021	126,927	$6.30	457,659	$2,050,885

 

(1)	We close our books and records on the last calendar day of each month to align our financial closing with our business processes.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.

  

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following Management’s Discussion and Analysis is intended to assist the reader in understanding our results of operations and financial condition. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K (this "Annual Report"). This Annual Report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act. All statements, other than statements of historical fact, included in this Annual Report that address activities, events or developments that we expect, project, believe, or anticipate will or may occur in the future, including matters having to do with expected and future revenue, our ability to fund our operations and repay debt, business strategies, expansion and growth of operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by us, our performance on our current contracts and our success in obtaining new contracts, our ability to attract and retain qualified employees, and other factors, many of which are beyond our control. You are cautioned that these forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in such statements.

 

Overview

 

The Company is a SaaS provider, and the parent company of ReposiTrak, a B2B e-commerce, compliance, and supply chain management platform company that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies. The Company’s fiscal year ends on June 30. References to fiscal 2021 refer to the fiscal year ended June 30, 2021.

 

 

 

Sources of Revenue

 

The principal customers for the Company’s products are multi-store retail chains, wholesalers and distributors, and their suppliers. The Company has a Hub and Spoke business model, whereby the Company is typically engaged by Hubs, which in turn require Spokes to utilize the Company’s services. The Company derives revenue from five sources: (i) subscription fees, (ii) transaction based fees, (iii) professional services fees, (iv) license fees, and (v) hosting and maintenance fees

 

A significant portion of the Company’s revenue is generated from its Supply Chain solutions and Compliance and Food Safety solutions in the form of recurring subscription payments from the suppliers. Subscription fees can be based on a negotiated flat fee per supplier, or some volumetric metric, such as the number of stores, or the volume of economic activity between a retailer and its suppliers. Subscription revenue contains arrangements with customers for use of the application, application and data hosting, maintenance of the application, and standard support.

 

Revenue from the Company’s MarketPlace sourcing solution is transactional, based on the volume of products sourced via the application. MarketPlace revenue can come from several sources depending on the customer’s specific requirements. These include acting as an agent for a supplier, providing supply chain technology services, and enabling a Hub to reduce its number of new suppliers by acting as the supplier for any number of products.

 

The Company also provides professional consulting services targeting implementation, assessments, profit optimization and support functions for its applications and related products, for which revenue is recognized on a percentage-of-completion or pro rata basis over the life of the subscription, depending on the nature of the engagement. Premier customer support includes extended availability and additional services and is available along with additional support services such as developer support and partner support for an addition fee.

 

In some instances, the Company will sell its software in the form of a license. License arrangements are a time-specific and perpetual license. Software license maintenance agreements are typically annual contracts, paid in advance or according to terms specified in the contract. When sold as a license, the Company’s software, is usually accompanied by a corresponding Maintenance and/or Hosting Agreement to support the service.

 

Software maintenance agreements provide the customer with access to new software enhancements, maintenance releases, patches, updates and technical support personnel. Our hosting services provide remote management and maintenance of our software and customers’ data, which is physically located in third-party facilities. Customers access ‘hosted’ software and data through a secure internet connection. 

Revenue Recognition

 

Effective July 1, 2018, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606), and its related amendments (“ASU 2014-09”). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers.

 

ASU 2014-09 represents a change in the accounting model utilized for the recognition of revenue and certain expense arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, accordingly, revenue and expense totals for all periods before July 1, 2018 reflect those previously reported under the prior accounting model and have not been restated.

 

 

 

Other Metrics – Non-GAAP Financial Measures

 

To supplement our financial statements, historically we have provided investors with Adjusted EBITDA and non-GAAP income per share, both of which are non-GAAP financial measures. We believe that these non-GAAP measures may provide useful information regarding certain financial and business trends relating to our financial condition and operations. Our management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analyses and planning purposes. These measures are also presented to our Board of Directors.

 

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Critical Accounting Policies

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reporting period.

 

On an ongoing basis, management evaluates its estimates and assumptions based on historical experience of operations and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Income Taxes

 

In determining the carrying value of the Company’s net deferred income tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s statements of operations. Management evaluates quarterly whether to realize the deferred income tax assets and assesses the valuation allowance.

  

Goodwill and Other Long-Lived Asset Valuations

 

Goodwill is assigned to specific reporting units and is reviewed for possible impairment at least annually or upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment.

 

The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate. 

 

Stock-Based Compensation

 

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The Company records compensation expense on a straight-line basis. The fair value of any options granted are estimated at the date of grant using a Black-Scholes option pricing model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.

 

 

 

Capitalization of Software Development Costs

 

The Company accounts for research costs of computer software to be sold, leased or otherwise marketed as expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established.

 

We have determined that technological feasibility for our software products is reached shortly after a working prototype is complete and meets or exceeds design specifications including functions, features, and technical performance requirements.  Costs incurred after technological feasibility is established have been and will continue to be capitalized until such time as when the product or enhancement is available for general release to customers. The Company capitalized software development costs of $171,733 in the fiscal year ended June 30, 2021.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue and results of operation, liquidity or capital expenditures.

  

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-15 Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. The update requires a customer in a hosting arrangement to capitalize certain implementation costs. Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed. For instance, costs for training and data conversion should be expensed. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which is the noncancelable period plus periods covered by an option to extend if the customer is reasonably certain to exercise the option. Impairment of the capitalized costs should be considered similar to other intangibles. The effective date of this update is effective for annual reporting periods beginning after December 15, 2019 for public entities and after December 15, 2020 for all other entities with early adoption permitted. The Company is a customer in a hosting arrangement and may enter into new arrangements in the future. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to this update, equity-based payments to non-employees was accounted for under Subtopic 505-50 resulting in significant differences between the accounting for share-based payments to non-employees as compared to employees. One of the most significant changes is that non-employee share-based awards (classified as equity awards) may be measured at grant-date fair value and not have to be continually revalued until the service/goods are rendered. The update also indicates that share-based awards related to financing and awards granted to a customer in conjunction with selling goods or services are not included in Topic 718. This standard is effective for interim and annual reporting periods beginning after December 15, 2018 for public entities and December 15, 2019 for all other entities. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted the standard during the first quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

  In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which amends and simplifies the accounting standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount a reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the standard during the fourth quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

  

 

 

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). All amounts and disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

 

Results of Operations – Fiscal Years Ended June 30, 2021 and 2020

 

Revenue

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Revenue	$21,007,076	$969,022	5%	$20,038,054

  

During the fiscal year ended June 30, 2021, the Company had revenue of $21,007,076 compared to $20,038,054 for the year ended June 30, 2020, a 5% increase. The increase in revenue was due to growth in both subscription revenue and Marketplace revenue, partially offset by approximately $145,500 in one-time license revenue that occurred in 2020 that did not reoccur in 2021.

 

During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of personel protective equipment ("PPE") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company has experienced a significant increase in Marketplace revenue for PPE during the height of COVID-19, it is uncertain whether demand for PPE will continue at the same level. As a result, we may experience reduced demand for MarketPlace attributable to PPE as the pandemic begins to abate.

 

Cost of Services and Product Support

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Cost of service and product support	$6,884,647	$(112,777)	-2%	$6,997,424
Percent of total revenue	33%			35%

 

Cost of services and product support was $6,884,647 or 33% of total revenue, and $6,997,424 or 35% of total revenue for the years ended June 30, 2021 and 2020, respectively, a 2% decrease. This decrease is primarily the result of (i) higher expense associated to MarketPlace and the sales of PPE; and (ii) an increase in hardware/software non-capitalized items required for updating our information systems security, maintaining equipment licensing and other database systems.

 

While we have experienced a significant increase in Marketplace costs and corresponding revenue during the pandemic due to demand in PPE, it is unclear what level of ongoing Marketplace costs we may experience as the pandemic begins to abate.

 

Sales and Marketing Expense

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Sales and marketing	$4,995,578	$(779,731)	-14%	$5,775,309
Percent of total revenue	24%			29%

  

 

 

The Company’s sales and marketing expense was $4,995,578, or 24% of total revenue, and $5,775,309, or 29% of total revenue, for the fiscal years ended June 30, 2021 and 2020, respectively, a 14% decrease. This decrease in sales and marketing expense is due primarily to a decrease in variable compensation, a reduction in trade show expense, and lower sales and marketing travel expense.

 

General and Administrative Expense

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
General and administrative	$5,214,936	$266,493	5%	$4,948,443
Percent of total revenue	25%			25%

 

The Company’s general and administrative expense was $5,214,936, or 25% of total revenue, and $4,948,443 or 25% of total revenue for the years ended June 30, 2021 and 2020, respectively, a 5% increase. General and administrative expense increased year over year due to an increase in bad debt expense and higher insurance costs. These increases were partially offset by lower general overhead due to cost cutting measures and natural reductions due to our “work from home” status since April of 2020.

 

Depreciation and Amortization Expense

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Depreciation and amortization	$1,019,515	$180,649	22%	$838,866
Percent of total revenue	5%			4%

  

The Company’s depreciation and amortization expense was $1,019,515 and $838,866 for the years ended June 30, 2021 and 2020, respectively, a 22% increase. This increase is due to the expansion of new equipment for the Company’s information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center completed in June 2020.

 

Other Income and Expense

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Other income and (expense)	$1,301,892	$1,144,716	728%	$157,176
Percent of total revenue	6%			1%

 

Other income was $1,301,892 compared to $157,176 for the years ended June 30, 2021, and 2020, respectively, a 728% increase. Other income increased due to recognition of a gain on debt extinguishment and higher interest income resulting from an increase of total cash held in short term investments offset in part by the increase in interest expense associated with financing arrangements for equipment purchased under a lease arrangement with a bank.  The financing arrangement was paid off in August 2020.

 

Preferred Dividends

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Preferred dividends	$586,444	$-	-%	$586,444
Percent of total revenue	3%			3%

 

Dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred was $568,444 for the years ended June 30, 2021 and 2020, respectively. Dividends remained flat in the comparable periods. 

 

 

 

Financial Position, Liquidity and Capital Resources

 

We believe that our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including macroeconomic conditions, our rate of revenue growth, sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products and services.

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Cash and Cash Equivalents	$24,070,322	$3,724,992	18%	$20,345,330

    

We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank N.A.

 

Cash was $24,070,322 and $20,345,330 at June 30, 2021 and 2020, respectively. This 18% increase is principally the result of growth in both software and MarketPlace revenue, collection of accounts receivable, and extinguished debt.

 

Net Cash Flows from Operating Activities

 

	Year Ended June 30, 2021	$ Change	%  Change	Year Ended June 30, 2020
Cash provided by operating activities	$5,401,815	$1,205,676	29%	$4,196,139

   

Net cash provided by operating activities is summarized as follows:

 

	2021	2020
Net income	$4,117,395	$1,593,269
Noncash expense and income, net	1,388,831	2,084,287
Net changes in operating assets and liabilities	(104,411)	518,583
	$5,401,815	$4,196,139

 

Net cash provided by operating activities for the year ended June 30, 2021 was $5,401,815 compared to net cash provided by in operating activities of $4,916,139 for the year ended June 30, 2020. Net cash provided by operating activities increased 29% due largely to higher revenues and lower operating costs. Noncash expense decreased by $695,456 in the year ended June 30, 2021 compared to June 30, 2020 as a result of gain on debt extinguishment and an increase in depreciation and amortization offset by a decrease in stock compensation expense.

 

Net Cash Flows Used in Investing Activities

 

	Year Ended June 30, 2021	$ Change	% Change	Year Ended June 30, 2020
Cash used in investing activities	$(318,873)	331,549	-51%	$(650,422)

 

Net cash used in investing activities for the year ended June 30, 2021 was $318,873 compared to net cash used in investing activities of $650,422 for the year ended June 30, 2020. This decrease in cash used in investing activities for the year ended June 30, 2021 was primarily due to the buildout of new Murray, UT headquarters and expansion of our data center that was completed in 2020 that did not occur in the same period in 2021.

 

 

 

Net Cash Flows from Financing Activities

 

	Year Ended June 30, 2021	$  Change	% Change	Year Ended June 30, 2020
Cash used in financing activities	$(1,357,950)	$451,860	-25%	$(1,809,810)

  

Net cash used in financing activities totaled $1,357,950 for the year ended June 30, 2021 compared to net cash used in financing activities of $1,809,810 for the year ended June 30, 2020. The decrease in net cash used in financing activities is primarily attributable to the August 2020 payoff of a financing arrangement with a bank partially offset by a decrease in our stock buyback program.

   

Liquidity and Working Capital

 

At June 30, 2021, the Company had positive working capital of $20,400,991, as compared with positive working capital of $18,236,664 at June 30, 2020.  This $2,164,327 increase in working capital is primarily due to an increase in cash resulting from higher revenue. 

 

	As of June 30,	As of June 30,	Variance
	2021	2020	Dollars	Percent
Current assets	$29,701,774	$27,148,911	$2,552,863	9%

 

Current assets as of June 30, 2021 totaled $29,701,774, an increase of $2,552,863, as compared to $27,148,911 as of June 30, 2020. The increase in current assets is primarily attributable to an increase in cash of $3,724,992, a decrease in contract assets and prepaid expense of $1,056,512 and a decrease in accounts receivable of $115,617.

 

	As of June 30,	As of June 30,	Variance
	2021	2020	Dollars	Percent
Current liabilities	$9,300,783	$8,912,247	$388,536	4%

 

Current liabilities totaled $9,300,783 as of June 30, 2021 as compared to $8,912,247 as of June 30, 2020. The comparative increase in current liabilities is primarily attributable to an increase of $1,340,000 in our line of credit, $161,356 decrease comprised of accrued liabilities and accounts payable, offset by a decrease of $790,108 of current portion of the notes payable and extinguished debt.

 

 While no assurances can be given, management currently believes that the Company will continue to increase its cash flow from operations and working capital position in subsequent periods, and that it will have adequate cash resources to fund its operations and satisfy its debt obligations for at least the next 12 months.

 

Contractual Obligations

  

Total contractual obligations and commercial commitments as of June 30, 2021 are summarized in the following table:

 

	Payment Due by Year
	Total	Less than 1 Year	1-3 Years	3-5 Years	More than 5 Years
Operating lease obligations	$695,370	$90,156	$194,326	$214,783	$196,105

 

 

 

Inflation

 

The impact of inflation has historically not had a material effect on the Company’s financial condition or results from operations; however, higher rates of inflation may cause retailers to slow their spending in the technology area, which could have an impact on the Company’s sales.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Each of our contracts require payment in U.S. dollars. We therefore do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although in the event any future contracts are denominated in a foreign currency, we may do so in the future. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates. 

  

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  

The information required hereunder in this Annual Report is set forth in the financial statements and the notes thereto beginning on Page F-1.

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

  

ITEM 9A.

CONTROLS AND PROCEDURES

 

(a)	Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2021. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)	Management’s Annual Report on Internal Control over Financial Reporting.

 

We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of GAAP.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of June 30, 2021, based on the framework and criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of June 30, 2021.

 

(c)	Changes in Internal Controls over Financial Reporting.

 

Our Chief Executive Officer and Chief Financial Officer have determined that there has been no change, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

 

 None.  

 

 

 

 

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this item will be incorporated by reference from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

The information required by this item will be incorporated by reference from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this item will be incorporated by reference from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this item will be incorporated by reference from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this item will be incorporated by reference from Park City Group, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2021.

  

 

 

 

 

PART IV

 

 

Exhibits, Financial Statements and Schedules

 

Exhibit Number		Description
3.1		Articles of Incorporation (Incorporated by reference from the Company’s Definitive Proxy Statement on Schedule 14C dated June 5, 2002). (1)
3.2		Certificate of Amendment (Incorporated by reference from Exhibit 3.3 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended Sept 30, 2005, dated November 10, 2005). (2)
3.3		Certificate of Amendment (Incorporated by reference from Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006, dated September 29, 2006). (3)
3.4		Certificate of Amendment (Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 28, 2017). (13)
3.5		Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.1 the Company’s Current Report on Form 8-K dated October 21, 2016). (11)
4.1		Certificate of Designation of the Series B Convertible Preferred Stock (Incorporated by reference from  Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 21, 2010). (4)
4.2		Fourth Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B Preferred Stock of Park City Group, Inc. (Incorporated by reference from Exhibit 4.1 the Company’s Current Report on Form 8-K dated January 14, 2016). (10)
4.3		First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock of Park City Group, Inc. (Incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 14, 2016). (10)
10.1		Amendment to Loan Agreement and Note, by and between U.S. Bank National Association and the Company, dated September 15, 2009 (Incorporated by reference from Exhibit 10.1 the Company’s Current Report on Form 8-K dated September 30, 2009). (5)
10.2		Amendment to Loan Agreement and Note, by and between U.S. Bank National Association and the Company, dated May 5, 2010 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 6, 2010). (6)
10.3		Second Amended and Restated 2011 Stock Incentive Plan, dated April 1, 2013 (Incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-8, dated September 4, 2013). (7)
10.4		Second Amended and Restated 2011 Employee Stock Purchase Plan, dated April 1, 2013 (Incorporated by reference from Exhibit 10.2 to the Company’s Registration Statement on Form S-8, dated September 4, 2013). (7)
10.5		Fields Employment Agreement (Incorporated by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K dated September 11, 2014). (9)
10.6		Services Agreement (Incorporated by reference from the Company’s Form 10-K dated September 11, 2014).(9)
10.7		Amendment No. 1 to the Employment Agreement, by and between Park City Group, Inc., Randall K. Fields and Fields Management, Inc., dated July 1, 2016 (Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated November 7, 2016). (12)
10.8		Amendment No. 1 to the Second Amended and Restated 2011 Stock Incentive Plan of Park City Group, Inc., dated August 3, 2017 (Incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-8 dated November 9, 2017) (15)
10.9		Amendment No. 1 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, Inc., dated August 3, 2017 (Incorporated by reference from Exhibit 10.2 to the Company’s Registration Statement on Form S-8 dated November 9, 2017) (15)
10.10		Amendment to Services Agreement  (Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 10, 2018). (16)
10.11		Amendment to Note, by and between U.S. Bank National Association and the Company, dated January 9, 2019 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 15, 2019). (17)
10.12		Master Lease Agreement, dated January 9, 2019 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 15, 2019). (17)
10.13		Employment Agreement by and between John Merrill and Park City Group, Inc., dated May 29, 2019 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 31, 2019). (18)
10.14		Loan Agreement by and between U.S. Bank National Association and the Company, dated April 23, 2020 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 27, 2020). (19)
10.15		Amendment No. 2 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, Inc., dated March 17, 2021 (Incorporated by reference from Exhibit 10.1 to the Company’s Form S-8 dated April 12, 2021). (20)
14.1		Code of Ethics and Business Conduct (Incorporated by reference from the Company’s Annual Report Form 10-KSB for the period ended June 30, 2008, dated September 29, 2008). (8)
21		List of Subsidiaries (Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ended June 30, 2017, dated September 13, 2017). (14)
23.1		Consent of Haynie & Company, dated September 28, 2021*
31.1		Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
31.2		Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *

 

(1)	Incorporated by reference from our Form DEF 14C dated June 5, 2002.
(2)	Incorporated by reference from our Form 10-QSB for the year ended Sept 30, 2005.
(3)	Incorporated by reference from our Form 10-KSB dated September 29, 2006.
(4)	Incorporated by reference from our Form 8-K dated July 21, 2010.
(5)	Incorporated by reference from our Form 8-K dated September 30, 2009.
(6)	Incorporated by reference from our Form 8-K dated May 6, 2010.
(7)	Incorporated by reference from our Registration Statement on Form S-8 dated September 4, 2013.
(8)	Incorporated by reference from our Form 10-KSB dated September 29, 2008.
(9)	Incorporated by reference from our Form 10-K dated September 11, 2014.
(10)	Incorporated by reference from our Form 8-K dated January 14, 2016.
(11)	Incorporated by reference from our Form 8-K dated October 21, 2016.
(12)	Incorporated by reference from our Form 10-Q dated November 7, 2016.
(13)	Incorporated by reference from our Form 8-K dated July 28, 2017.
(14)	Incorporated by reference from our Form 10-K dated September 13, 2017.
(15)	Incorporated by reference from our Registration Statement on Form S-8 dated November 9, 2017.
(16)	Incorporated by reference from our Form 10-Q dated May 10, 2018.
(17)	Incorporated by reference from our Form 8-K dated January 15, 2019.
(18)	Incorporated by reference from our Form 8-K dated May 31, 2019.
(19)	Incorporated by reference from our Form 8-K dated April 27, 2020.
(20)	Incorporated by reference from our Form 8-K dated April 12, 2021.
*	Filed herewith

 

 

 

SIGNATURES

 

 In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	PARK CITY GROUP, INC.
	(Registrant)
Date:    September 28, 2021	By:  /s/ Randall K.  Fields
	Principal Executive Officer, Chair of the Board and Director

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature	Title	Date
/s/ Randall K. Fields	Chair of the Board and Director,	September 28, 2021
Randall K. Fields	Chief Executive Officer  (Principal Executive Officer)
/s/ John Merrill	Chief Financial Officer	September 28, 2021
John Merrill	(Principal Financial Officer & Principal Accounting Officer)
/s/ Robert W. Allen	Director, and Compensation	September 28, 2021
Robert W. Allen	Committee Chair
/s/ Peter J. Larkin	Director	September 28, 2021
Peter J. Larkin
/s/ Ronald C. Hodge	Director, and Audit Committee Chair	September 28, 2021
Ronald C. Hodge

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Park City Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Park City Group, Inc. (the Company) as of June 30, 2021 and 2020, and the related statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Multiple Element Arrangements

Description of the Matter:

The Company recognized approximately $21 million in revenue during the year ended June 30, 2021. As discussed in Note 2 to the financial statements, the Company enters into several different types of revenue arrangements that often consist of multiple performance obligations. Management must use judgment to determine the appropriate value and allocation of revenue to these performance obligations.

Auditing management’s assumptions and judgments can be complex, involves judgment, and requires a thorough understanding of the Company’s various revenue streams.

How We Addressed the Matter in Our Audit:

We obtained and reviewed documentation to support the revenue recognition criteria. We tested performance obligations by reviewing the underlying contracts, evaluating management’s determination of the method and timing of measuring revenue, and testing management’s allocation of revenue to the performance obligations. Lastly, we tested the design and operating effectiveness of internal controls over the revenue cycle as well as the Information Technology General Controls as these heavily impact the revenue cycle.

 

Haynie & Company

Salt Lake City, Utah

September 28, 2021

 

We have served as the Company’s auditor since 2016.

 

 

 

 

PARK CITY GROUP, INC.

Consolidated Balance Sheets

  

Assets	June 30, 2021	June 30, 2020
Current Assets
Cash	$24,070,322	$20,345,330
Receivables, net of allowance for doubtful accounts of $234,693 and $251,954 at June 30, 2021 and 2020, respectively	3,891,699	4,007,316
Contract asset – unbilled current portion	1,248,936	2,300,754
Prepaid expense and other current assets	490,817	495,511
Total Current Assets	29,701,774	27,148,911
Property and equipment, net	2,589,194	3,003,402
Other Assets:
Deposits, and other assets	22,414	22,414
Prepaid expense – less current portion	47,987	77,030
Contract asset – unbilled long-term portion	408,925	838,726
Operating lease – right-of-use asset	695,371	781,137
Customer relationships	525,600	657,000
Goodwill	20,883,886	20,883,886
Capitalized software costs, net	171,732	18,539
Total Other Assets	22,755,915	23,278,732
Total Assets	$55,046,883	$53,431,045
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$467,194	$407,497
Accrued liabilities	988,092	1,123,528
Contract liability - deferred revenue	1,755,341	1,845,347
Lines of credit	6,000,000	4,660,000
Operating lease liability - current	90,156	85,767
Current portion of notes payable	-	310,242
Current portion of paycheck protection program loans	-	479,866
Total current liabilities	9,300,783	8,912,247
Long-term liabilities
Operating lease liability – less current portion	605,214	695,369
Notes payable, less current portion	-	610,512
Paycheck protection program loans	-	629,484
Total liabilities	9,905,997	10,847,612
Commitments and contingencies
Stockholders’ equity:
Preferred Stock; $0.01 par value, 30,000,000 shares authorized;
Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at June 30, 2021 and 2020;	6,254	6,254
Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at June 30, 2021 and 2020, respectively	2,124	2,124
Common Stock, $0.01 par value, 50,000,000 shares authorized; 19,351,935 and 19,484,485 issued and outstanding at June 30, 2021 and 2020, respectively	193,522	194,847
Additional paid-in capital	74,298,924	75,271,097
Accumulated deficit	(29,359,938)	(32,890,889)
Total stockholders’ equity	45,140,886	42,583,433
Total liabilities and stockholders’ equity	$55,046,883	$53,431,045

 

See accompanying notes to consolidated financial statements.

 

 

 

PARK CITY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 

	For the Years Ended June 30,
	2021	2020
Revenue	$21,007,076	$20,038,054
Operating expense:
Cost of revenue and product support	6,884,647	6,997,424
Sales and marketing	4,995,578	5,775,309
General and administrative	5,214,936	4,948,443
Depreciation and amortization	1,019,515	838,866
Total operating expense	18,114,676	18,560,042
Income from operations	2,892,400	1,478,012
Other income (expense):
Interest income	237,269	224,908
Interest expense	(106,680)	(67,732)
Unrealized gain on short term investments	61,953	-
Gain on debt extinguishment	1,109,350	-
Income before income taxes	4,194,292	1,635,188
(Provision) for income taxes	(76,897)	(41,919)
Net income	4,117,395	1,593,269
Dividends on Preferred Stock	(586,444)	(586,444)
Net income applicable to common shareholders	$3,530,951	$1,006,825
Weighted average shares, basic	19,502,000	19,651,000
Weighted average shares, diluted	19,754,000	19,863,000
Basic earnings per share	$0.18	$0.05
Diluted earnings per share	$0.18	$0.05

 

See accompanying notes to consolidated financial statements.

 

 

 

 

PARK CITY GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Deficit)

 

	Series B Preferred Stock		Series B-1 Preferred Stock		Common Stock		Additional Paid-In	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Deficit	Total
Balance, June 30, 2019	625,375	6,254	212,402	2,124	19,793,372	197,936	76,908,566	(33,897,714)	43,217,166
Stock issued for:
Accrued compensation	-	-	-	-	76,575	766	396,223	-	396,989
Cash	-	-	-	-	26,723	267	120,657	-	120,924
Preferred Dividends-Declared	-	-	-	-	-	-	-	(586,444)	(586,444)
Stock Buyback	-	-	-	-	(412,185)	(4,122)	(2,154,349)	-	(2,158,471)
Net income	-	-	-	-	-	-	-	1,593,269	1,593,269
Balance, June 30, 2020	625,375	$6,254	212,402	$2,124	19,484,485	$194,847	$75,271,097	$(32,890,889)	$42,583,433
Stock issued for:
Accrued compensation	-	-	-	-	46,376	464	216,789	-	217,253
Cash	-	-	-	-	32,082	321	117,166	-	117,487
Preferred Dividends-Declared	-	-	-	-	-	-	-	(586,444)	(586,444)
Stock Buyback	-	-	-	-	(211,008)	(2,110)	(1,306,128)	-	(1,308,238)
Net income	-	-	-	-	-	-	-	4,117,395	4,117,395
Balance, June 30, 2021	625,375	$6,254	212,402	$2,124	19,351,935	$193,522	$74,298,924	$(29,359,938)	$45,140,886